Multi-assetMay 12 2015

Investec’s Saunders boosts sterling exposure

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Investec’s Saunders boosts sterling exposure

Investec Asset Management’s Philip Saunders has ramped up exposure to sterling in a bid to take advantage of the weakness in the UK currency before the general election.

The UK’s currency had suffered compared with the dollar in recent months as investors have become increasingly worried about the uncertainty surrounding the election result.

Last week, the value of sterling had fallen by 11 per cent against the dollar since the start of July 2014, though it had rallied slightly from hitting its low point in mid-April.

But Mr Saunders said predictions of sterling’s weakness due to the election had become such a consensus view that all the uncertainty was priced in and sterling now offered some value as a tactical investment.

The manager said he had increased the sterling exposure in his Investec Diversified Growth fund from a low of 65 per cent up to 77.5 per cent now.

The sterling exposure has been increased largely by using derivatives to hedge the exposure on certain international assets back to the UK currency because, excluding the cash weighting, the fund only has 18.1 per cent invested in UK assets.

Mr Saunders said he managed currency “as part of the risk bucket” on the fund and had been running “quite material dollar positions within the fund” for some time.

The manager explained he was “strategically positive about the dollar” but had reduced the position in favour of getting more exposure to sterling due to the greenback’s strong rally.

While he has been upping the fund’s exposure to sterling, Mr Saunders has also been toning down the risk in other areas.

The fund is broadly divided into three portions – growth, defensive and alternative assets.

Mr Saunders and his co-manager Michael Spinks have been reducing the fund’s exposure to growth assets, which includes equities and equity-like assets, such as high-yield bonds, in favour of defensive assets and cash.

The percentage of the fund’s money allocated to growth assets has fallen from 57.9 per cent halfway through 2014, and 54 per cent at the start of this year, down to 50.3 per cent currently.

Mr Saunders said the reduction in growth assets did not mean he was overly bearish on the outlook for markets.

The fund had as little as 23 per cent in growth stocks back in 2008 when it was first launched in the grips of the financial crisis.

But he said: “We have dialled back growth exposure because valuations of a lot of growth assets, such as high yield, are at relatively challenging levels.”

The manager said he was running a “quite high cash level” of 14.5 per cent at the moment because he thought the market was “in a corrective or consolidation phase”.